Real Estate Investor 路 Minneapolis, MN 路 Member since 2017 路 164 posts 路 30 votes
Alright, bear with me here because this is a bit weird.
We already own a SFR that we like and aren't looking to sell.
So we have ~30k that we can use, but apparently that's pretty tight when we need a 25% down payment and duplexes around our area in Minnesota around 230-330 range.
Here's my line of thinking, if my husband and I own our house together, could one of us move out and say we're looking to buy this duplex as the spouse's primary residence so we can get better lending and then "house hack" that way? Or could that not even be a possibility since we are both on the title for our current house? So say I'd be the primary resident for our current house, and my husband is the primary resident at the duplex? So we'd have the bare minimum at that location and he'd stay there and fix stuff up while staying there at the minimum time to claim he's a primary residence and then we'd BRRRR.
I'm sure this is incredibly silly, but my Google searching didn't bring up exactly what I was looking for.
Yeah....I mean I don't mean for it to come across like that...but it kind of does...
I guess another question would be if he's not on the house deed but is on the mortgage, would him purchasing a duplex on his own qualify that to be his primary residence? I guess I'm not sure what is used to decide that besides living there, and us being on our current house's title and mortgage?
Occupancy fraud: This occurs where the borrower wishes to obtain a mortgage to acquire an investment property, but states on the loan application that the borrower will occupy the property as the primary residence or as a second home. If undetected, the borrower typically obtains a lower interest rate than was warranted. Because lenders typically charge a higher interest rate for non-owner-occupied properties, which historically have higher delinquency rates, the lender receives insufficient return on capital and is over-exposed to loss relative to what was expected in the transaction. In addition, lenders allow larger loans on owner-occupied homes compared to loans for investment properties. When occupancy fraud occurs, it is likely that taxes on gains are not paid, resulting in additional fraud. It is considered fraud because the borrower has materially misrepresented the risk to the lender to obtain more favorable loan terms.
But, I think that's only if you don't actually live there, and it sounds like since we're married anyways we couldn't do it.
@Kelly Conrad I knew someone once who was thinking about divorcing his wife (who he loves) so he could rent/buy a condo in Las Vegas, establish his legal residency there, have the wife and kids stay here in California so they could go to school, and not have to pay state income taxes in California. He would, of course, rarely/never be in Nevada physically but "on paper" he would be there the majority of the time. My point is, you can get silly creative in a way to rationalize to the IRS, lenders, etc. that everything is on the up-and-up but it's still a misrepresentation of your intentions and (therefore) fraud. Or maybe I'm just too conservative :-)
There would be no fraud if you legally separate and live in separate properties. After a year or so you sell the house hack property and move back in together. Estranged spouses often do reconcile but you would need to live separately for the year. It is very doable.
There would be no fraud if you legally separate and live in separate properties. After a year or so you sell the house hack property and move back in together. Estranged spouses often do reconcile but you would need to live separately for the year. It is very doable.
Interesting. What qualifies as someone living at a property? Just having bills in his name and staying there? This all sounds shady but now I'm just curious
Your realtor should have a couple lending contacts that can do 20% or 15% depending on the property. Most of our investors are doing 20% down in order to make the numbers work, although we have a 1.5 million dollar deal at 15%, but the profit margins were much higher to begin with.
You could both buy a property (SFR on up to 4 plex) as a primary residence (don't need to put 25% down), both move into it (not just on paper, but actually physically move into it), turn your current property into a rental (no need to sell). After a year or ideally 2 years you could move back into your SFR or even better repeat to buy another. No mortgage fraud, no deception, just good old fashioned house hacking. Yes, it would be easier to just stay in your current SFR and do nothing, but sacrifices need to be made one way or another to get ahead. That sacrifice is either coming up with 25%, or doing what is described above, or buying something distressed on HML to BRRRR it, etc., etc.
@David Faulkner Thank you! I guess I don't have to tell my husband we're getting separated ;)
I'll look harder at the hard money lending! That just might be a good spot to start for us since we're really close to that mark but not quiet there. Have you used hard money before?
Before you turn to hard money, have you looked into private investors? You'd be surprised at how many of your friends and family have money in the bank making almost no interest that might be willing to lend for 4 or 5%.
@Kelly Conrad I am a lender and I do work in your market and I can confirm that what you proposed is mortgage fraud. I'm sure you didn't mean anything sinister by it. It does bring up an excellent strategy which would be to turn your current house into a rental and buy a new primary residence that you do live in. One issue you may run into if you are looking to purchase a duplex to live in when you own a single family is the lender believing you will move in. Occupancy fraud is a major issue for lenders and it can burn the originating lender for tens of thousands of dollars in the worst case scenario so they will not just take your word for it that you are moving into a duplex when you own a single family home. They will look at the relative size and condition of your current home, along with its proximity to work and compare that to the new home. If the new duplex is a stellar old brick building on Lake of the Isles and your current home is a small 1.5 story in a very average area of Minneapolis the lender will likely believe you, but in general, that is a tough sell.
There are some loans for investors with 15% down. The terms are bad but it's an option and if it works for you. then it's worth considering. If you want to make real estate a career its best to avoid any appearance of fraud. If you say you're going to live in a place, then that place should be where you sleep. It has nothing to do with your mailing address or other factors.